TUDOR INDIA PVT LTD V. JT COMMISSIONER OF INCOME TAX

SCA/15142/2018

AI Insights

In the case of Tudor India Pvt Ltd versus JT Commissioner of Income Tax, the petitioner challenged the validity of a notice issued for reopening the assessment for the year 2011-12. The notice was based on the grounds that there were international transactions with an Associated Enterprise (AE) which required a reassessment of the arms length price. The petitioner argued that the reopening was beyond the four-year limit and that all material facts had been disclosed in the original assessment. The court found that the reopening was not justified as there was no failure to disclose material facts by the petitioner, and thus, the notice was quashed.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 750861 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-12-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M R BHATT; MAUNA BHATT
• Assessee Lawyers: S N DIVATIA
• Keywords: Arms' length price; International Transactions; Reopening of assessment; Transfer Pricing Officer; Underassessment
• Section: 147; 148; 143(3); 92CA; 92C; 92E

Judgement Text

"C/SCA/15142/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 15142 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ================================================================ TUDOR INDIA PVT LTD Versus JT COMMISSIONER OF INCOME TAX ================================================================ Appearance: MR SN DIVATIA(1378) for the PETITIONER MR MR BHATT, SR. ADVOCATE with MRS MAUNA M BHATT(174) for the RESPONDENTS ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Date : 11/12/2018 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) Page 1 of 7 C/SCA/15142/2018 JUDGMENT 1. Rule. Mrs. Mauna Bhatt, learned Senior Standing Counsel waives service of notice of rule on behalf of the respondent. 2. Having regard to the controversy involved in the present case which lies in a very narrow compass and with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing today. 3. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the validity of the notice dated 04.12.2017 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen the assessment of the petitioner for assessment year 2011-12. 4. The petitioner, a Company, filed its return of income for assessment year 2011-12 on 29.11.2011 declaring total income of Rs.1,79,42,470/-. The audit report as required under section 92E of the Act in Form-3CEB was filed on 30.11.2011. The return came to be selected for scrutiny and regular assessment came to be completed under section 143(3) of the Act on 31.01.2014. Thereafter, by the impugned notice dated 04.12.2017 issued under section 148 of the Act, the respondent proposed to reassess the income of the petitioner for assessment year 2011-12. In response to the impugned notice the petitioner filed return on 19.04.2017 and requested the respondent to provide a copy of the reasons recorded for reopening the assessment. Upon such reasons being furnished, the petitioner submitted its objections thereto. Vide order dated 07.08.2018, the respondent rejected the Page 2 of 7 C/SCA/15142/2018 JUDGMENT objections raised by the petitioner. Being aggrieved, the petitioner has filed the present petition. 5. Mr. S. N. Divatia, learned advocate for the petitioner submitted that in this case, the assessment for the year 2011- 12 is sought to be reopened by the impugned notice dated 04.12.2017, which is clearly beyond a period of four years from the end of the relevant assessment year, and hence, the first proviso to section 147 of the Act would be attracted and in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, the assumption of jurisdiction on the part of the Assessing Officer is invalid. It was submitted the in the entire reasons recorded there is not even a whisper that there is any such failure on the part of the petitioner. 5.1 Referring to the reasons recorded, it was submitted that the Assessing Officer seeks to reopen the assessment on the ground that the petitioner had international transaction with its Associated Enterprise of aggregate value of Rs.11,25,77,741/-, which was required to be referred to the Transfer Pricing Officer under section 92CA for computation of arms length price of such transactions. It was pointed out that in view of the fact that in the preceding assessment year, the arms length price of corporate cost was taken at Nil and an upward adjustment was proposed by the Transfer Pricing Officer, the Assessing Officer seeks to reopen the assessment on the ground that the arms length price of payment of corporate cost to Associated Enterprise could not be benchmarked at Nil as done in the previous year and subsequent years and resulted into an upward adjustment of Rs.3,31,22,076/- Page 3 of 7 C/SCA/15142/2018 JUDGMENT towards international transaction to the income and hence, there was an underassessment to that extent. 5.2 The attention of the court was invited to the provisions of section 92C of the Act and more particularly, to sub-section (3) thereof, to submit that the discretion lies with the Assessing Officer to proceed to determine the arms length price in relation to the international transactions. It was submitted that therefore, the failure, if any, is on the part of the Assessing Officer and there is no failure on the part of the petitioner. It was further submitted that mere reference to the Transfer Pricing Officer for another year cannot be a ground for reopening the assessment for the year under consideration. It was, accordingly, urged that on the reasons recorded, the Assessing Officer could not have formed the belief that any income chargeable to tax has escaped assessment on account of failure on the part of the petitioner to disclose fully and truly all material facts, and hence, the impugned notice being without jurisdiction deserves to be quashed and set aside. 6. On the other hand, Mr. M. R. Bhatt, Senior Advocate, learned counsel with Mrs. Mauna Bhatt, learned Senior Standing Counsel for the respondent placed reliance upon the order disposing of the objections as well as the averments made in the affidavit-in-reply filed on behalf of the respondent. 7. Before adverting to the merits of the rival contentions, reference was made to the reasons recorded for reopening the assessment which read as under: “Reasons:- On verification of case records for AY Page 4 of 7 C/SCA/15142/2018 JUDGMENT 2011-12, it was revealed that assessees company M/s Tudor India Ltd. had international transaction with its AE, aggregate value of Rs.11,25,77,741/- and as such, the AO was required to refer the case to TPO u/s. 92CA for computation of ALP of such transactions. It was also noted international transactions during AY 2011-12 also included payment of Rs.3,31,22,076/- to AE towards corporate cost/management cost. In the preceding AY 2010-11, the ALP of corporate cost taken at NIL and an upward adjustment proposed by TOP. Further, the ALP of corporate cost at NIL was also confirmed by DRP, Ahmedabad vide directions dt. 28.11.2014. In view of the above facts, payment of corporate cost to AE during AY 2011-12 also to be considered at NIL in the line of earlier TP order since, the facts/matters/terms etc. for payments remained same. Failure to observe procedures prescribed u/s 92C and 92CA of the Act, the ALP of payment of corporate cost to AE could not be benchmarked at NIL as done in previous and subsequent years and resulted into an upwards adjustment of Rs.3,31,22,076/- towards international transaction to the income. Consequently, there is underassessment of income of Rs.3,31,22,076/-. In view of the above facts, it is evident that income to the extent of Rs.3,31,22,076/- has escaped assessment. Therefore, this is a fit case for reopening assessment u/s. 147 for the AY 2011-12.” 8. A perusal of the record of the case reveals that during Page 5 of 7 C/SCA/15142/2018 JUDGMENT the course of scrutiny assessment, the petitioner had submitted a report under section 92E of the Act for the year under consideration relating to international transactions for the previous year ended on March 31, 2011 along with relevant annexures. In the annexure to Form No.3CEB, the petitioner had shown particulars in respect of lending or borrowing money as well as the fact regarding the assessee having entered into international transactions, the details whereof are shown in Appendix-4. Thus, during the course of assessment proceedings, the petitioner had duly disclosed the international transactions which find reference in the reasons recorded. Under the circumstances, there is no failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration. Moreover, on a reading of the reasons recorded for reopening the assessment in their entirety, there is nothing therein to indicate that there is any failure on the part of the petitioner to disclose fully and truly all the relevant facts. 9. Besides, on a plain reading of the reasons recorded, it is evident that the same refers to sections 92C and 92CA of the Act and the failure on part of the Assessing Officer to observe the procedures prescribed thereunder. Under the circumstances, this being a reopening of the assessment beyond a period of four years from the end of the relevant assessment year, whereby the proviso to section 147 of the Act is clearly attracted, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts relevant for its assessment, the assumption of jurisdiction on the part of the Assessing Officer is without authority of law. Page 6 of 7 C/SCA/15142/2018 JUDGMENT The impugned notice, therefore, cannot be sustained. 10. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 04.12.2017 (Annexure “A” to the petition) issued under section 148 of the Income Tax Act, 1961 for assessment year 2011-12, is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (A. P. THAKER, J) B.U. PARMAR Page 7 of 7 "